Bryan McDaniel: pension regulator

Automatic enrolment

The role of the Pensions Regulator

CIMA Seminar – Automatic Enrolment – Are you Ready?

Bryan McDaniel Industry liaison manager September 2014 The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.

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Why automatic enrolment is needed •

As a society we are living longer, healthier lives.

•

There are currently four people of working age for every pensioner  by 2050 there will be just two.

•

Millions of people are under-saving for their retirement.

•

Only 1 in 3 private sector workers were in a pension scheme in 2012  and the trend has been downwards for the last 40 years.

•

The reforms being introduced now will help millions of individuals to save more (or save for the first time) for their retirement.

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Proportion of all employees in a workplace pension Implementation of automatic enrolment commenced in 2012.

In 1997, 55% of employees were members of a workplace pension scheme, falling to 47% in 2012, prior to the introduction of automatic enrolment.

In April 2013, 85% of public sector and 36% of private sector employees were in a workplace pension.

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What’s happened so far …

•

As at the end of July 2014 •

21,303 employers have completed their Declaration of Compliance (Registration),

•

covering over 17m workers, of which: •

around 4m people were automatically enrolled; and

•

8.6m were already in a qualifying scheme;

•

423k workers had the Transitional Period applied;

•

and 4.4m were ‘none of the above’.

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Staging profile (volumes of employers) Planning ahead is key.

Very large volumes staging from January 2016

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Planning timeline - www.tpr.gov.uk/planner

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Common myths

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Top myths Myth

Reality

1.

Postponement delays the staging date and there is no need to do anything until then.

1.

Postponement does not change the staging date (and other duties still apply in this period).

2.

Employers or advisors can work out the staging date using the staging date tables.

2.

Employers are unlikely to know their PAYE size on 1 April12, so must use our staging date tool.

3.

Employers can use their existing pension scheme for automatic enrolment.

3.

It may not be possible, as the scheme may not be suitable and/or the provider may not allow it.

4.

Self employed contractors are not subject to automatic enrolment.

4.

It is possible for a self employed person to be a worker under AE in certain circumstances.

5.

You cannot help an employer choose a pension unless you are FCA accredited.

5.

You should not give an opinion, unless you have the expertise, but you can give the related facts.

6.

The Pensions Regulator will never find out if the employer does not carry out its duties.

6.

The Pensions Regulator gets daily PAYE data from HMRC and staff may also whistleblow.

7.

It is only a £50 fine for small employers.

7.

The regulator can issue a £400 fixed penalty for failing to comply with the employer duties and this may be followed by an escalating penalty. † We can also make employers pay employees’ back contributions.

†

For employers with 1 to 50 staff, this penalty ranges from £50/day to £2,500/day.

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Other common myths - I Myth

Reality

1.

If you send out a postponement notice after the 6 week deadline, it is just a ‘technical’ breach and doesn’t really matter.

1.

If a postponement notice is not issued within 6 weeks, it is nullified and the employer will have to retrospectively assess / autoenrol jobholders.

2.

Sole employee/director companies will not have any automatic enrolment employer duties.

2.

A sole employee (who is a director of that company) is exempt, but the company may have non-employees who are considered workers.

3.

Pensionable pay is used to determine which category a worker is (eg EJH).

3.

Qualifying Earnings must be used for the assessment, not pensionable earnings.

4.

A person who leaves a pension scheme can be left until re-enrolment.

4.

Workers who have never been an EJH will need to be assessed every pay cycle.

5.

You can’t Opt-out until a contribution has been taken.

5.

If the Opt-out window opens before the first payday, a contribution may never need to be taken.

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Other common myths - II Myth

Reality

6.

People contractually enrolled get an Opt-out window.

6.

A contractual enrolment has no “Opt-out window”, but can exit under scheme rules.

7.

To achieve active membership of a contract pension you can email the URL for the T&Cs.

7.

The T&Cs have to be included or attached to the email or the contract will not be established.

8.

It’s ok if the employer does not send the enrolment info for new joiners to the pension provider until the Opt-out window closes.

8.

It must be sent by the end of the 6 week joining window – and the 1 month Opt-out period may end later than this.

9.

The Pay Reference Period (PRP) is the same as the pay frequency.

9.

The PRP may or may not be the same as the pay frequency.

10. The assessment should never be based on money paid before the staging date.

10. Assessments using a tax month PRP are based on earnings paid from 6th of the month before.

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What workers are affected?

•

•

A worker could be subject to the automatic enrolment legislation if they: – work under a contract of employment (an employee), or – have a contract to perform work or services personally ( and they cannot send a substitute or sub-contract the work unless they are unable to perform the work, eg due to sickness) and are not undertaking the work as part of their own business.

A contract does not have to be in writing, it can be a verbal contract.

•

The terms of employment can be implied, rather than explicitly stated.

•

Some staff are considered workers even when not carrying out work, if enduring employment relationship (eg some “zero-hours” contracts).

•

If worker has >1 contract with one employer, the employer should make a “reasonable judgement” as to whether to aggregate or separately assess.

•

Secondees would normally be the responsibility of the seconding company.

•

Workers transferred-in under the TUPE regulations should be considered as new joiners by the receiving company.

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Who is a personal services “worker”?

•

An individual considered as self-employed for tax purposes, could still be assessed as a “worker” for the purposes of the new duties, if: – the employer expects them to perform the work themselves, and – they cannot sub-contract the work or send a substitute, unless they are unable to perform the work (eg due to sickness). and: –

•

they are not undertaking the work as part of their own business.

An individual may be a “worker” if most, or all, of the following statements are true. If the employer...

– has control over an individual’s method of work (eg hours worked); – provides employee benefits; – bears all the significant financial risks in carrying out the work (eg the worker is not financially responsible for faulty work); – provides what is required for the individual to carry out the work. ...but this list is not exhaustive, an employer must take into account all relevant considerations and make a reasonable judgement.

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Who is the worker’s “employer”?

•

For a worker who: i.

works under a contract of employment (an employee); or

ii. is directly contracted to perform work personally to the company who pays them (a ‘personal services contract’):  the employer will be the legal entity named in the contract.

Otherwise (if neither of i or ii above applies)

iii. For a worker who is supplied by an agent to a third party (the principal), to perform work personally, under a contract or arrangement between the agent and the third party : –

the agent or third party will be the agency worker’s employer depending on which is responsible for paying the worker under any arrangement between the agent and the third party; or

–

if it cannot be determined who is responsible for paying the worker, then whichever actually pays the worker will be the employer.

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Office holders and other people who are not workers •

Serving members of the armed forces (including Cadets and ATC) are not classified as workers.

•

A director is not a worker by virtue of any work that they do for a company if: – they do not have an employment contract, or – they do have an employment contract, but there is no one else working for the company on an employment contract.

•

An office-holder (other than a director) may or may not be classified as a worker, depending on their contractual position (like any other individual).

•

An office-holder is someone who holds a post which only exists because a law or charter etc says it must exist, or it is an ecclesiastical appointment, or an appointment under the internal constitution of an organisation or under a trust deed.

•

Many office-holders (such as trustees or board members of statutory bodies) do not work under any kind of contract, even though they may be paid. They will therefore not be workers.

•

However, some office-holders do have an employment or personal services contract, and they will be workers in respect of earnings under the contract.

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Contracts and ‘who is a worker?’

Type of work contract between individual and this company

Is this individual a worker? (if number of employees in the company = 1)

Is this individual a worker? (if number of employees in the company = 2 or more)

Employee (and not a director)

√

√

√

√

X

X

Director who is an employee

X

√

Director who is not on an employment contract

X

X

Personal services worker (so not on an employment contract and also not a director) Contractor (not an employee and who is not a personal services worker and not a director)

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How and when to communicate to workers •

Communications must be direct (eg letter, e-mail, payslip, HR web-portal).

•

At staging, need to communicate to all workers, even scheme members.

•

Need to inform of rights the first time† a worker becomes a particular category

Communication

Deadlines for communication

Existing scheme members at staging

2 months after staging

Workers who are not already in a qualifying pension scheme at staging

6 weeks after staging

Enrolment notifications and transitional period notices

6 weeks from the assessment date (eg before midnight of

Postponement notices

6 weeks from the day after the assessment date (eg before

Mon 12 May, if assessment date is Tue 1 April).

midnight on Tue 13 May, if assessment date Tue 1 April).

 For further information: www.tpr.gov.uk/docs/resource-info-to-workers.pdf www.tpr.gov.uk/employers/letter-templates-for-employers.aspx †

Unless they are already an active member of a scheme provided by the employer and, if they are a jobholder, the scheme is a qualifying scheme . The use of a General Notice A or B Postponement notice discharges this duty.

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What to communicate to workers •

On staging, workers already members of a qualifying pension scheme must be provided with information about the scheme.

•

Non- eligible jobholders and entitled workers must be provided with information telling them about their right to Opt-in or join a pension scheme.

•

For eligible jobholders being automatically enrolled (and non-eligible jobholders being enrolled after Opting-in) they must be provided with: – information about their enrolment, – what it means for them, including the contributions, and – their right to Opt-out.

•

Workers subject to a deferral of automatic enrolment need to be given key information such as the length of the deferral period and their rights to Opt-in: – Eligible jobholders subject to the DB transitional period; – Any worker subject to a postponement period.

We have provided example letter templates for employers:

•

www.tpr.gov.uk/employers/letter-templates-for-employers.aspx

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Automatic enrolment process •

The assessment date is either: – The employers staging date for any existing workers; – The first day of employment for any new joiner after the staging date; – The birthday of someone turning 16 or 22 years old; or – The first day of the Pay Reference Period (PRP) for any other worker assessed after the employers staging date; or – If postponement has been used, the last day of the postponement period.

•

The total Qualifying Earnings - paid in the Pay Reference Period in which the assessment day falls – is compared to the earnings thresholds.

•

The PRP is either based on tax weeks or months (if the normal interval between payday is a whole number of weeks or months) - or is the “period of time by reference to which the employer pays the worker their regular wage or salary”.

•

Eligible jobholders will need to be automatically enrolled in the “joining window” of 6 weeks from the assessment date - unless it is possible to use postponement.

•

The first employee contribution must be taken on the first payday on or after the assessment date.

•

Scheme membership will be dated and contributions calculated from the assessment date.

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Monitoring eligibility •

If a worker ceases active membership of a qualifying scheme because: – the worker opts out; – or otherwise chooses to cease active membership;  then the employer will need to continuously assess the worker’s eligibility every pay reference period (and automatically enrol if eligibility is triggered)

•

unless: – the worker has ever been an eligible jobholder and an active member of a qualifying scheme simultaneously, since the latter of: • the employer’s staging date; or • the date they started work for the employer; or • the last day of postponement or transitional period (if used).  Those workers that do fall into the above category can be left until the next appropriate re-enrolment date (see slide on re-enrolment).

However, if a jobholder ceases active membership of a qualifying scheme because

• the

scheme ceases to be a qualifying scheme:  then the employer will need to automatically enrol them into a pension scheme which is qualifying.

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Opting-out •

Employers should not induce workers to Opt-out or cease membership or not join.

•

For statutory Opt-outs (ie under the AE legislation, not contractual enrolments): – Employer must not handle pre - ‘Opt-out’ process or send out Opt-out forms: • Opt-out process should be managed by pension scheme administrator; • Completed forms normally sent to the employer.

– Employer must inform staff of right to Opt-out and how to Opt-out.

– A one calendar month Opt-out window starts on the latter of two dates: • when active membership is achieved; and • when the employer issues a letter/email to the jobholder.

– Employee/worker and employer will get full refund of all contributions.

– Employee/worker to be paid refund in next payday (unless past payroll cut-off).

– Early Opt-outs (before the Opt-out window starts) - are not allowed.

– If invalid Opt-out received in Opt-out window, will extend to 6 weeks in total.

– Late Opt-outs – employer choice: can reject or treat as ‘request to cease membership’ under normal scheme rules.

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Our role - overview Our approach: •

Educate

•

Enable

•

Enforce

To meet our statutory objective: to maximise employer compliance with employer duties •

we are risk based and proportionate.

Follow the principles of good regulation: •

Proportionate, accountable, consistent, transparent and targeted (PACTT)

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Supporting employers – education and enablement The materials we produce are aligned to meeting the needs of employers in a changing market and they include: •

guidance – both detailed and simplified

•

online learning resources

•

research and analysis, and

•

reports.

We work proactively and flexibly with employers, providers and trustees to resolve non-contentious issues. This includes taking steps to: •

identify potential problems at an early stage, and

•

enable our key audiences to find solutions, which may sometimes include the use of our powers.

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Non-compliance and enforcement How do we know about instances of non compliance?

•

whistleblowing

•

information analysis, such as comparing declaration of compliance (registration) data with current PAYE data

•

sharing intelligence with other agencies

•

targeted pro-active visits to employers who are at high risk of non-compliance (possibly as a result of the industry sector they are in)

•

employers call us

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Inspections and record keeping •

Employers, as well as trustees, managers and providers of a pension scheme, must keep records about their workers and the pension scheme used to comply with the employer duties.

•

An employer can use electronic or paper filing systems to keep or store any records, as long as these records are legible or can be produced in a legible way.

•

Most records must be kept for six years; those that relate to Opting-out must be kept for four years.

•

The records must be produced to The Pensions Regulator, if requested.

•

The Pensions Regulator can conduct an inspection for the purpose of: – investigating whether an employer is complying, or – has complied with the employer duties.

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Enforcement powers Informal action • instructions by telephone, letter, email and in person – provide as much assistance as is reasonably practicable – preventative action – sending targeted communications • warning letter – for minor alleged breach – timeframe for compliance set Statutory powers – gathering information • formal requests for information (if a breach is suspected) – failure to comply may lead to criminal prosecution/civil penalties • inspection powers – failure to comply may lead to criminal prosecution

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Enforcement powers continued...

Statutory notices issued to employers or third parties •

Compliance notice

•

Third party compliance notice

•

Unpaid contribution notice

•

Prohibited recruitment conduct compliance notice

Penalties •

Fixed penalty notices £400

•

Escalating penalty notices £50-£10,000 daily

Civil debt recovery Criminal prosecution Proceeds of Crime Act 2002

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Examples of breaches •

Breaches include (but are not limited to): – failure to automatically enrol eligible jobholders • eg late issuing of postponement notices may lead to failure to automatically enrol on the staging date – failure to enrol non-eligible jobholders who give notice to Opt-in – failure to arrange active membership for an entitled worker – inducements – unpaid contributions - not paid over to pension scheme – failure to keep certain records (eg where the employer destroys them) – failure to refund contributions following automatic enrolment when an Opt-out notice has been received – criminal offences where the behaviour is wilful .

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Investigations ‘99% of employers who have completed their declaration of compliance (registration) with us have done so without the need for us to use our powers’.

•

1,251 intelligence referrals for possible non-compliance (1 April 2013-31 March 2014)

•

917 cases closed by 30 June 2014

•

23 uses of our statutory powers by 30 June 2014

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Use of formal powers •

Formal action (as at 30 June 2014): – 17 compliance notices – 1 unpaid contribution notice – 3 statutory inspection notices – 2 statutory demands

•

2 employers requested a review of our decision: – review confirmed original decisions

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Lessons learnt – staging date and shared PAYE Key lesson for employers who share a PAYE scheme: •

They have an individual responsibility to comply with the automatic enrolment duties and make a declaration of compliance.

•

Where an employer used (as of 1st April 2012) the PAYE of another organisation, rules around staging dates could mean they need to stage at the same time as this company.

•

If an employer misses their staging date and are no longer able to use postponement (ie more than 6 weeks has elapsed), they will be required to backdate active membership for eligible jobholders to their staging date.

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Lessons learnt – software Background: •

Through an investigation we identified an employer who had: – failed to enrol all eligible jobholders, and – was not paying the correct contributions in some instances.

This was due to: •

key members of staff leaving at critical times

•

bespoke payroll solution design flaws, and

•

data quality issues experienced when uploading employee information to the pension provider, which prevented active membership being achieved.

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Lessons learnt – software continued...

How we supported compliance: • we undertook an inspection to investigate the payroll software and to engage directly with members of their automatic enrolment project team • we sent an unpaid contributions notice, and • we agreed with the employer the rectification plan they would put in place and this resulted in: – all outstanding contributions being paid, and – enrolment of eligible workers.

The key lessons for employers are: •

to ensure that payroll systems are well tested and have the correct requirements, and

•

where possible, seek project team member continuity throughout implementation.

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Lessons learnt – early testing of software Background: • A whistleblower advised us that their pension contributions were not reflected in their individual pension pot, according to the scheme provider.

• On investigation, this was due to the employer‘s payroll software not forwarding information about the contributions collected to the provider in a data format that enabled the allocation of individual funds without manual data cleansing.

How we supported compliance: • we contacted the employer to ensure they were aware of the failure, and • we agreed the plan of rectification between the employer, the payroll software provider and pension provider.

The key lessons for employers are: • early testing of payroll software is recommended, to allow sufficient time for any changes to be made and trialled to ensure it functions as required, to • ensure that software and exchange of data meets the needs of all partners.

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Lessons learnt – declaration of compliance Background: • We identified an employer who had not made the declaration of compliance for one of their subsidiary companies.

• This was due to the employer seeking to align staging dates, but failing to allow sufficient time to gather the required information.

How we supported compliance: • we contacted the employer to let them know they were in danger of failing to make their declarations and to give them the opportunity to do so, and • we provided specific information to enable them to do so.

The key lesson for employers are: • employers and their subsidiaries wishing to align staging dates within a group structure need to work together to ensure they complete their declarations on time, as • accountability for doing this falls on each individual employer.

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Remedying a breach What if an employer makes a mistake and fails to carry out their duties?

Tell the Regulator about the breach. TPR’s approach is an employer: •

should take reasonable steps to put the worker back in the position they would have been in if compliance had occurred on time, and

•

should not profit from their mistake.

That means the employer should: •

enrol them, backdated to the original date, and

•

ensure backdated employer pension contributions are paid, and

•

ensure backdated employee pension contributions are collected.

If TPR decides to take formal action against the employer and the worker should have been enrolled more than 3 months ago, TPR has the power to: •

require the employer to pay both their own and employee contributions, and

•

require interest to be added to outstanding contributions.

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Our approach – in summary Our approach: •

To educate and enable employers to help them comply.

•

Where an employer has not understood the duties or has not complied – we will work with them to try and achieve compliance (contact centre)

•

We want employers to contact us if they are experiencing difficulties – in order to maximise compliance, and – ensure workers get their pension contributions.

If an employer chooses to ignore their duties: •

this is unacceptable and the regulator will use its powers where necessary to ensure compliance.

Increase in notices issued and therefore fines for : •

failing to complete a declaration of compliance (register), and

•

late payments.

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Useful links Compliance and enforcement strategy www.tpr.gov.uk/docs/pensions-reform-compliance-and-enforcement-strategy.pdf Compliance and enforcement policy www.tpr.gov.uk/docs/pensions-reform-compliance-and-enforcement-policy.pdf Use of powers www.tpr.gov.uk/docs/automatic-enrolment-use-of-powers-june-2014.pdf Annual report www.tpr.gov.uk/docs/automatic-enrolment-commentary-analysis-2014.pdf FOI www.tpr.gov.uk/foi/automatic-enrolment-registrations.aspx

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Failure to comply by an employer – escalating penalties Number of persons

Prescribed daily rate (ÂŁ)

1-4

50

5-49

500

50-249

2,500

250-499

5,000

500 or more

10,000

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Failure to comply by a person other than employer Notice

Prescribed daily rate (ÂŁ)

Third party compliance notice (s36)*

200

Compliance notice (s35)**

200

S72 notice***

200

* Section 36 – eg would be used where a scheme provider had failed to process enrolment so active membership was not achieved, causing the employer to be in breach of the employer duties. **Section 35 - eg would be used where a scheme provider had failed to refund contributions to an employer. ***Section 72 – eg would be used , in respect of a failure by a person other than an employer, for example, a bank/scheme provider.

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Prohibited recruitment conduct (s50/s51) Number persons

Fixed penalty (ÂŁ)

1-4

1,000

5-49

1,500

50-249

2,500

250-or more

5,000

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Any questions?

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Additional slides

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Useful links • Planning tool: www.tpr.gov.uk/planner • The essential guide to automatic enrolment: www.tpr.gov.uk/ • Staging date tool: www.tpr.gov.uk/employers/tools/staging-date.aspx • employers/e-brochure/index.html • Our detailed guides for employers and pension professionals: www.tpr.gov.uk/pensions-reform/detailed-guidance.aspx • Information about declaration of compliance (registration): www.tpr.gov.uk/declaration • Letter templates for employers: www.tpr.gov.uk/employers/letter-templates-for-employers.aspx

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Useful links - webinars • •

•

• • •

Automatic enrolment – dispelling the myths www.tpr.gov.uk/press/webinar-automatic-enrolment-dispelling-the-myths.aspx Identifying your workforce and calculating minimum contribution levels www.tpr.gov.uk/press/webinar-identifying-workforce-calculating-minimumcontribution.aspx Implementing automatic enrolment systems and pension schemes www.tpr.gov.uk/press/webinar-implementing-automatic-enrolment-systemsschemes.aspx Automatic enrolment – are you ready? www.tpr.gov.uk/press/webinar-automatic-enrolment-are-you-ready.aspx Automatic enrolment registration www.tpr.gov.uk/press/webinar-automatic-enrolment-registration.aspx Automatic enrolment ‘question time’ www.tpr.gov.uk/press/webinar-automatic-enrolment-question-time.aspx

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Wholly or ordinarily working in UK* A worker can be considered to be wholly working in the UK:

•

– if a worker’s contract specifies that the work is to be done in the UK; or – if they are an “offshore worker” and work in the territorial waters of the UK (or in the UK sector of the continental shelf – please see Employer’s Detailed Guides); and – there is no simultaneous employment relationship between the worker and a non-UK employer for the same work. 

It does not matter whether the worker is a UK national.



It does not matter whether they make occasional business trips outside the UK.

•

Or, if they are not wholly working in the UK (eg an airline pilot), do they ordinarily work in the UK?

•

What does the employment contract specify and how does it work in practice: – – – – – –

where the worker begins and ends their work; where their private residence is, or is intended to be; where the worker’s headquarters is; whether they pay income tax and national insurance contributions in UK; whether their work has a sufficiently strong connection to the UK; and what currency they are paid in. *

The Channel Isles and the Isle of Man are outside the UK

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Secondments into and out of UK •

Individuals working on secondment from another company will usually remain a worker for the company from which they are seconded.

•

If a UK-based employer makes a short term placement of a worker outside the UK they will need to consider whether the worker’s base remains in the UK despite their placement overseas, so: –

if the worker’s contract remains with the employer located in the UK; and

–

there is an expectation on the part of the employer that the worker will resume working in the UK for the UK-based employer at the end of the placement; and

–

that worker would be, were it not for the placement, assessed as working or ordinarily working in the UK;

 then the worker is likely to be considered to be ordinarily working in the UK. •

If a non-UK employer sends a worker on secondment to a UK organisation, the non-UK employer will need to consider whether the worker’s base remains outside the UK despite their secondment to the UK, so: –

if the worker’s contract remains with the employer located outside the UK; and

–

there is an expectation on the part of the employer that the worker will return to work for their employer outside the UK at the end of their placement;

 then the worker is unlikely to be considered to be ordinarily working in the UK.

DM 2777032 v6C These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction.

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The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.

DM 2777032 v6C These slides remain the property of The Pensions Regulator and their content should not be altered on reproduction.